TITLE:
The Influence of Corporate Social Responsibility on the Financial Performance of Firms in Ghana: The Moderating Role of Board Independence and Diversity
AUTHORS:
Timothy Azaa Ayamga, Christine Avortri, David Nasere, Sharon Donnir, Kingley Tornyeva
KEYWORDS:
CSR, ROA, ROE, GPM, Board Independence, Board Diversity, Manufacturing and Service Sectors’ Firms
JOURNAL NAME:
American Journal of Industrial and Business Management,
Vol.14 No.4,
April
24,
2024
ABSTRACT: Purpose: This study investigates the intricate relationship between Corporate Social Responsibility (CSR) initiatives, corporate governance structures (board independence & diversity), and financial performance [(Return on Asset (ROA), Return on Equity (ROE), & Gross Profit Margin (GPM)] in the context of Ghanaian firms operating in the manufacturing and service sectors. Design/Methodology/Approach: Adopting longitudinal secondary data analysis and drawing from annual reports of 39 firms in Ghana over a six-year period (2015-2021), our research reveals sector-specific nuances in the impact of CSR on financial metrics. Findings: Notably, CSR initiatives significantly predict ROA and GPM, underlining the potential for operational efficiency gains and profitability through socially responsible practices. However, these initiatives do not significantly predict ROE, indicating the need for nuanced CSR strategies tailored to specific financial objectives. Delving into governance dynamics, the study uncovers the moderating role of board independence in the CSR-ROA relationship, suggesting that boards with a higher degree of independence play a discerning role in enhancing asset efficiency. Conversely, board diversity does not exert a significant moderating effect on any financial performance indicators, emphasizing the need for a more nuanced understanding of governance structures in the CSR context. Practical Implications: These findings hold important implications for both management and theoretical frameworks. Managers are encouraged to strategically align CSR initiatives with specific financial goals, considering the influence of board structures. The absence of a universal impact of board diversity prompts caution, indicating that diversity alone may not be the primary driver of CSR’s financial impact. Theoretical Implications: Theoretical implications highlight the need for sector-specific analyses, extended considerations of governance mechanisms, and exploration of context-specific moderators to enhance the precision and applicability of models in CSR literature. Originality/Value: The originality of this research lies in its focused examination of CSR in a specific national context, consideration of multiple financial metrics, exploration of governance dynamics, and the cautionary note regarding the role of board diversity in influencing CSR’s financial impact.